What happened

Shares of Under Armour (NYSE:UA) (NYSE:UAA) were falling today after the sportswear maker missed the mark in its first-quarter earnings report. Under Armour was already struggling before the COVID-19  pandemic hit, and the virus has only made its hoped-for turnaround more difficult.

The stock was down 10.6% as of 12:51 p.m. EDT. 

Five Under Armour running shoes displayed in a row

Image source: Under Armour.

So what

Overall revenue in the quarter fell 23% to $930 million with 15 percentage points of the decline due to COVID-19, the company estimated. That result missed analyst expectations at $949 million. Wholesale revenue was down 28% in the period as key retail partners like Kohl's shuttered their stores in mid-March, while direct-to-consumer revenue fell 14%. It continued to struggle in North America, its biggest market, where revenue fell 28%. Internationally, revenue declined 12%, rising modestly in the EMEA (Europe, Middle East, and Africa) and Latin American regions, but falling sharply in Asia-Pacific due to the earlier impact of the pandemic there. 

Gross margin in the quarter actually expanded 110 basis points as the company benefited from lower off-price sales, but overhead costs rose even as revenue fell and the company finished the quarter with an adjusted operating loss of $122 million. On the bottom line, it reported an adjusted loss per share of $0.34, worse than expectations of a loss of $0.19.

Acknowledging the difficulty of the crisis, CEO Patrik Frisk said, "Like so many businesses, we've had to make very difficult decisions, including temporarily laying off teammates in our U.S. retail stores and distribution centers along with other actions to ensure we protect Under Armour's financial stability." However, he called the balance sheet "well managed" and the company finished the quarter with nearly $1 billion in cash and equivalents after drawing down $600 million from a credit facility.

Now what

Due to the impact of the pandemic, Under Armour will reduce 2020 operating expenses by $325 million and capital expenditures by $100 million. The company withdrew its guidance in April, but on the earnings call, management said that 80% of its business has been at a standstill since the second quarter started, and it saw second-quarter revenue falling as much as 50% to 60% in the second quarter. 

Though the company expects business to improve as the economy reopens, it still sees significant headwinds over the coming months.